Massachusetts Estate Planning & Asset Protection Blog

A Married Couple's Asset Protection Journey

Posted by Dennis Sullivan & Associates on Thu, Aug 30, 2018

couple_at_table

 

At Dennis Sullivan & Associates we were fortunate enough to be able to help a married couple, both teachers, plan for their retirement and estate planning. After being referred to us by an independent financial adviser toward the end of their careers we advised that they may want to attend one of our Free Discovery Workshops on Estate, Trusts, and Asset Protection Planning.

After being impressed with what they learned at the Workshop they scheduled their complimentary meeting to have us review their existing wills, trusts, disability, and healthcare documents. They made it clear that they had long term care insurance that would cover only $100 per day for two years (At the time cost of care at a nursing home was roughly $400 per day). Therefore, they would have had to pay $300 per day had a situation arose in the near term. $300 x 365 = $109,500 annually for two years, a total of $219,000. After the first two years of coverage lapsed, they would be responsible for the entirety of the cost of care payments. If nursing home costs did not rise, at $400 they would be looking at a nursing home bill of $146,000 annually. For comparison, the rates today are in the neighborhood of $18,000 per month and are steadily rising.

Because of the high cost of in home care and a desire to maintain control of their assets and healthcare decisions they had us create for them an updated Revocable Living Trust as well as a new protective trust for their home and long term savings. Having a solid asset protection plan allowed them to decide to avoid paying over $15,000 every year to expand their long term care coverage from $100 to $250 a day, which was short of the $400 a day, cost at the time. They were pleased that this estate plan would protect their home, spouse, and life savings!

Over a decade later they remain clients and members of The Lifetime Protection Program as we help them strategically plan how their trusts and other life and death documents should function to preserve their capital.

As members of the Lifetime Protection Program, this retired couple enjoy many benefits. First, we helped them implement the proper healthcare documents for their children and grandchildren, over the age of 18, to ensure that in the case of an emergency; medical professionals would be able to disclose information to family members. This is a little known secret that you do not want to find out the hard way. [Please see our upcoming workshop schedule to discover more]

With healthcare documents in place, we were able to focus our attention on asset preservation and protection. As with most people that we help they were interested in ways to provide for the surviving spouse and ultimately, maximize the inheritances of their family members. Putting the deed to their home into their protective trust ensured that when their children inherited the property they would receive the step-up in basis as well as protecting the home against nursing home costs down the road. This alone will save their children from paying any long term capital gains if they sell the home at market value. Various gifting strategies, educational savings plans including a 529 account, were additional steps taken to reduce their overall estate tax levied by the Commonwealth of Massachusetts. An important step taken was to update their Durable Power of Attorney forms to provide maximum security in the event that either one of them lost capacity during their lifetime, and there were assets that were NOT included in their trusts. To discover more about trusts, life and death planning, as well our unique process and services visit DSullivan.com and sign-up for a free discovery session. You and your family will be glad you did for generations to come. This planning could save you and your family countless nightmares, heartache, and a significant amount of money. Click here to attend an upcoming workshop today or call 1-800-964-4295 to register.

Tags: grandchildren, care costs, step up basis, Inheritance, surviving spouse, Wills, irrevocable trust, trust, transferring, donations, charitable

Step Up Basis Part 2

Posted by Dennis Sullivan & Associates on Tue, Mar 10, 2015

Losing the Step Up Basis Could be a Step Back On Your Estate Planning | Massachusetts Estate Planning Attorney
piggy_bank_Small

Last week we were discussing potential changes to the tax laws proposed by President Obama that would eliminate the step up in basis.  Obama claims the target is wealthy Americans but the change could have a much bigger impact on average middle class citizens.

     That’s because with the federal estate tax exemption currently at $5.43 million, only estates larger than that number must pay federal estate tax.  While Massachusetts estate taxes kick in on estates greater than $1,000,000, removing the step up in basis still means that many heirs would have to pay additional taxes on the assets they will inherit.

     Here is a common scenario:  Mary passes away and leaves her assets to her children.  Those assets include Exxon stock she and Frank bought many years ago and it is now worth $500,000.  The total estate is worth $1,000,000, including her home which Mary and her husband Frank purchased for $30,000, which is now worth $500,000.

     Under current tax laws, the children get a step up in basis on both the inherited stock and home.  Presuming they sell the home immediately after Mary’s passing, there would be no capital gains tax owed on the home.  The new basis would be the sale price.  The stock would also get a step up in basis.  The estate would owe approximately $25,000 in Massachusetts estate tax but no federal estate tax.

     If the step up is eliminated, the estate would still owe the same Massachusetts estate tax but now there would be an additional capital gains tax.  Obama’s proposal does suggest that some amount of capital gain be excluded from tax but let’s assume in my example there is no exemption.  Let’s also assume that the capital gains tax rate is 25%.  In that case, the tax on the home gain would increase to $95,000, almost four times what it is now.

     The tax on the stock would be more complicated to calculate.  We would need to figure out what Mary and Frank bought the stock for in order to determine the original basis. If Mary and Frank didn’t keep good records of their, it may be very difficult for their children to get them since they didn’t buy the stock themselves. The problems will only increase as well if there were stock splits or if the stock was bought in increments over time and different portions have a different basis.

     In any case, if the stock was held for many years then, it is safe to assume there would be substantial capital gains and the tax could easily exceed $100,000.  Add that to the tax on the sale of the home and you can see that a small estate of $1,000,000 could have additional tax of $200,000 or more, on top of the estate tax.

President Obama claims that he wants “wealthy Americans to pay their fair share”, but he doesn’t tell us that in the process everyone else will be paying more than their own fair share. Sure, the wealthy would be subject to this additional tax as well, but Obama’s plan clearly misses the mark.

Click here for more information on  Estate Planning and Asset Protection

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: estate tax, estate tax savings, taxes, Tax Savings, Inheritance, 2015, heir, stock, step up basis

Step Up Basis Part 1

Posted by Dennis Sullivan & Associates on Mon, Mar 02, 2015

Losing the Step Up Basis Could be a Step Back On Your Estate Planning | Massachusetts Estate Planning Attorney

 piggy_bank_Small

 

A few weeks back, President Obama proposed, in his State of the Union address, that the “step up in basis” provision of the capital gains tax be eliminated.  While Obama claims that he wants to eliminate a loophole for the rich, such a change could have a bigger impact on the average middle-class American.

             Before I explain why, let’s review just what exactly what the step up in basis is.  Certain assets, such as stocks, mutual funds and real estate, appreciate in value over time.  Joe bought stock in Apple for $10.  If it is now worth $1,000 and he sells it, he will have a gain of $900.  That $900 gain is subject to something called capital gains tax.  The gain is calculated by subtracting the sale price minus the basis, which usually is the purchase price. (There are cases where the basis gets adjusted but we’ll keep our example simple.)

            There are certain instances where Joe may not have to pay capital gains tax.  One such instance is if he holds onto that stock and don’t sell it before he dies.  Instead, he transfers it to his heirs as part of his estate.  They now own it and the tax that comes with it.

             If his heirs then sell it for $1,000, must they pay tax on the $900 gain?  The answer is no. This is because of something called the step up in basis.  Upon the date of his death Joe’s stock “steps up” in value to $1,000.  So if the market value is $1,000 on Joe’s date of death, and his heirs sell it for its stepped up value of $1,000, the gain will now be zero and all the unrealized gain tax from Joe’s lifetime disappears. 

             This can be a huge tax break for many families.  For example, if Paul purchased Microsoft or IBM stocks many years ago and held onto them as they multiplied; he would have accumulated significant gains over the years.  If he holds onto his stocks until he dies and then his children inherit it, the tax on all that gain is gone and they will owe nothing in taxes if they sell it.  This could amount to tens of thousands of dollars tax-free for his family.  On the other hand, if Paul was to transfer the stock to the children while he is alive they get his original basis, what is called a “carryover basis”.  They’ll have to pay tax on all the unrealized gains based on the original price that Paul paid for the stocks.

            Now that you know how the step up in basis works, next time we’ll tell you why President Obama’s proposal could miss the mark on targeting the wealthy and instead have a greater impact on middle-class America.

 

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: taxes, Obama, middle class, Inheritance, 2015, Capital Gains Tax, proposed changes, heir

Supreme Court Case Puts Inherited IRAs at Risk!

Posted by Dennis Sullivan & Associates on Thu, Jan 15, 2015

Supreme Court Case Puts Inherited IRAs at Risk | Massachusetts Asset Protection Attorney

law_books

 

A landmark case before the U.S. Supreme Court holds that Inherited IRAs are not protected from creditors. One June 12, 2014 the U.S. Supreme Court handed down its opinion in Clark v. Rameker, which questioned whether or not an inherited IRA could be shielded from Bankruptcy. Heidi Heffron-Clark inherited an IRA from her mother in 2001 and filed bankruptcy 9 years later, the question was whether she could keep the assets held in the IRA.

The Court unanimously held that retirement funds inherited by a beneficiary from the original plan participant are not considered to be “retirement funds” within the meaning of the federal bankruptcy exemptions found at 11 U.S.C. §522(b)(3)(c).

A clear legal distinction was drawn between an inherited IRAs and those that you set up for yourself. An inherited IRA has several unique features that suggest they are not retirement assets, which were noted by the Court. Unlike IRA owners, inheritors can’t add additional funds to the account, but they can take out money at any time without penalty. Usually a participant’s own IRA is subject to early withdrawal penalties if taken out early, unlike an Inherited one. Generally, non-spousal beneficiaries of an IRA must either withdraw the entire amount within five years of the original owner’s date of death, or take out a minimum amount each year, starting by December 31 of the year after the date of death. This is true for both Roth and Traditional IRAs.

What You Can Do To Protect The Inheritance For Your Beneficiaries:       

The upshot is that Clark v. Rameker argues very strongly in favor of setting aside retirement accounts that will pass upon the death of the plan participant into a special type of trust designed to both protect inheritances from future creditors of the beneficiary, but also to ensure that the trust will qualify as a Designated Beneficiary under the Internal Revenue Code.

A Retirement Plan Trust can be created to protect all of your inheritable retirement accounts. In creating this type of trust, you are using the trust as your beneficiary instead of the individual. The beneficiary of the trust will be the original individual you wanted to benefit from your protected retirement account. This is what many would call a “work around”, which is possible even with the new supreme court case.

For more information on how to protect your IRAs, click here to download our Free Report on the IRA Protection and Maximization Trust.

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Protective Trusts, trusts, Tax on IRAs, trust, IRA, Inheritance, Supreme court

The Pit Falls of Do-It-Yourself Medicaid Planning

Posted by Dennis Sullivan & Associates on Fri, Nov 07, 2014

The Pit Falls of Do-It-Yourself Medicaid Planning | Massachusetts Elderlaw Attorney

 

Carrier_Nursing_Home_Poverty 

Off To A Good Start

We got a call the other day from Ben.  He had prepared and filed his mother’s Medicaid application himself.  From what he told us, it sounded like he did a great job.

He had hit a bit of a snag because Ben and his brother had been helping Mom out with her expenses.  At first, the Medicaid caseworker treated the transfers into Mom’s account as additional income to her.  However, Ben was successfully able to prove that the money was given to Mom to help pay some of her medical expenses.  It wasn’t support and shouldn’t affect her Medicaid eligibility.  He was successful and Medicaid was approved.

So Why Was He Calling?

Ben was calling us because his mother had inherited $75,000 from a family member. The first thing he wanted to know was whether there was any way they could keep the money.  His thinking was that the inheritance would act as a reimbursement by Mom to Ben and his brother.

I told him that unfortunately I didn’t think it would work that way.  The lesson here is that if Ben had consulted with us before he applied for Medicaid we would have taken steps to make sure that he could recoup some of the funds in the event that something like this happened. The reason his plan wouldn’t work is because he didn’t document that the money he gave to his mom was a loan.  He said that he never could have foreseen that his mother could ever pay back the money and that at the time; he didn’t see the need to write up a contract. Unfortunately, from a Medicaid perspective, the Commonwealth of Massachusetts presumes that the money given to Mom is either income to support her, or a gift.

This Is Why You Should Consult A Professional

Remember, I told you that when Ben applied for Medicaid, the caseworker tried to peg it as income.  Ben successfully fought that.  However, he didn’t see the gift vs. loan issue coming.    Not knowing the Medicaid rules as I do, how could he have?  Without a written agreement at the time he gave Mom the money, the presumption is that there was never an intention for Mom to pay her sons back, making any attempt now to do so a transfer subject to a Medicaid penalty.

Ben didn’t like my answer and tried to find a way around the system.  “What about if Mom refuses to accept the inheritance,” he asked.  “It would then pass to my brother and me.”

Disclaimers May Not Apply

Ben is referring to what is known as a disclaimer.    A disclaimer is a legal statement filed by the heir who says, “I am supposed to receive this gift but I don’t want it”.  Mom would be treated as having predeceased (died) before the relative leaving her the $75,000.  Under his will, that money would have passed to Ben and his brother.

Sounds great so far doesn’t it, but it won’t work.  By refusing to accept the money, Medicaid treats it as if Mom took the inheritance and gave it away.  It is no different than if she accepts it and then turns around and gives it to her children.  It causes a Medicaid penalty either way.

So where does that leave Ben?  He and Mom have two very unappealing choices.  She can accept the money, come off of Medicaid and spend the money down and then reapply.  Or, she can stay on Medicaid and give all the money to the State of Massachusetts.   Tough choices, I know.  But, that’s what makes Medicaid so tricky when you are trying to navigate it alone, and why we always recommend professional guidance on your Medicaid journey.

 

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At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: Medicaid, family, Medicaid penalties, medicaid qualification, Inheritance

The High Cost of Seniors Living Longer

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, Sep 05, 2014

 

The Cost of Living Longer | Massachusetts Eldercare Attorney

 

 planning, estate, eldercare

 

A Pachyderm of Problems

Every day, we see clients for whom long-term care is the elephant in the room. They feel they can’t afford the costs, but they also feel they can’t afford not to have it either. So their solution is to pretend they don’t see the elephant and try to ignore the problem until it goes away on its own. This unfortunately often leads to our metaphorical elephant trampling their life savings and any future inheritance they are trying to leave behind. The older you are, the more expensive a long-term care policy gets and if you get sick before you have long-term care protection in place, it’s too late. Insurance companies are looking out for their bottom line, and an already ill senior will scare them off.

The costs for these policies are rising faster than inflation too. Therein lies the conundrum for Boomers and seniors: They’re living longer than their parents did but that means they need more money to make it through “old age”. Finding long-term care is a tough and complicated process. You’ll need to find a place that cares for people with your (or your loved one’s) circumstances. You need to find a place with the right facilities and staff, a place that leaves you with a good, safe feeling. And you have to be able to afford it too. This is not any sort of one-size-fits-all situation. Everyone has their own specific services and conditions that they or their loved ones will need met. Remember, what we call “long-term care” is a broad category, with options ranging from live-in facilities to your own home.

Lurking Complications With Long Term Care

The greatest threat to the financial security of Boomers and seniors is the cost of long-term care (and Obamacare will not assist with this). Assisted-living facilities are now climbing toward the $7,500-a-month mark. Many have started bundling more services together, rather than charging for each individually. Bundling might be a good idea from the nursing home’s perspective, but just like pre-packaged cable TV you will wind up paying for a lot of services you don’t need and don’t want. A private room at a nursing home will range from $500 - $600 a day.

The cost of home healthcare is rising, too. Some people choose independent-living apartments. These facilities typically don’t require lump-sum payments, and residents can contract with home health-services independently. Medicaid may be there for those who qualify but if you ever want to learn the true meaning of “jumping through hoops” just try qualifying! The best thing, of course, is long-term care insurance, but that’s getting more expensive too as companies raise their rates while cutting back on their coverage. In addition, this insurance is getting more complicated, now encompassing aspects such as protection of the surviving spouse, caregiver issues, scams/ID theft, and making sure you have an advocate to fight for your rights in a system that’s slanted against you.

In short, we’re living longer, and unlike previous generations, people are generally not living with or even near their children. Seniors are going to need more money for this longer life and for any unforeseen medical problems that may arise.

A Magic Trick No One Wants to See

Do you know the fastest way for a Boomer or senior couple to become an impoverished Boomer or senior couple is? Simple, one of them just needs to become ill before they get long-term care insurance. We see it every day, people who’ve worked hard and saved money all their lives are forced to see it wash away in a flood of medical bills as they age. It is truly heart-breaking, because, if you’ve managed to squirrel some money away, you could probably have afforded long-term care. 

The Downside to Living Longer

Our life expectancies are going up these days and so is the cost of healthcare, the distance seniors are living from their children and families, and the financial pressures on Medicare and Medicaid. The new Affordable Care Act, in fact, stipulates $500 billion in Medicare cuts over the next decade! Where do you turn if you or your spouse gets ill? Home health care? Adult day-care? Assisted-living? A nursing facility? Respite-care services, which allow the caregiver to drop off the senior for a limited period? Who’s going to pay for it? And for how long?  These are the questions to ask now, while you still have time to plan. If you haven’t purchased long-term care before you or your spouse become ill…forget about it. No one will insure you once you’re sick! If this happens to you, you’re going to be out of time, out of options, and very quickly out of money. And if you’ve planned to leave something for your heirs, there may be nothing left to leave to them other than a pile of bills. 

 

It’s an old (but true) cliché: those who fail to plan, are planning to fail. When it comes to healthcare expenses as you age, you fail to plan at the risk of yourself and those you love.  

 

At the Estate Planning & Asset Protection Law Center, we provide a unique education and counseling process which includes our unique 19 Point Trust, Estate and Asset Protection Review to help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones, click here for more information. We provide clients with a unique approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop 

 

Tags: living will, Estate Planning, Estate Planning, asset protection, Massacusetts Estate Tax, long term care, life insurance, Medicaid, MassHealth, in-home care, marriage, Estate Planning Tip, seniors, assisted living, life-care plan, hospice, Massachusetts, assets, in home, incapacity, asset, home, surviving spouse, Estate Planning Recommendations, in-home care, long term care insurance, Inheritance

Unequal Inheritance, A Problem with Communication

Posted by Massachusetts Estate Planning & Elder Law Attorney, Dennis B. Sullivan, Esq., CPA, LLM on Fri, Aug 22, 2014

The Problems with Unequal Inheritance | Massachusetts Estate Planning Attorney

Inheritance, family, unequal 

Just Because It Makes Sense to You…

Sometimes clients want to leave more to one of their children than another. Their reasons may vary, ranging from their child’s current financial wellbeing, to any special needs they may have or even which of their kids is their favorite. What does not seem to change though is their concern that this may cause discord in their family once they find out.

It can be an uncomfortable subject to talk about with your family and you can never be certain how people will react, but the alternative of finding out only after their loved one has already passed, can be far more devastating. The reasons you use to make the decision of who-gets-what may be perfectly clear to you, but your children may not know what you based your decision on and they will never get a chance to ask you about it. The emotional fallout from this can rip once close-knit families apart.

 

Money Does Not Equal Love

This is because of the often mistaken tendency to equate love and money. If you leave more money to one of your children their siblings may think that you loved them more. After all, if you had some sort of logical reasoning behind the decision, why wouldn’t you have simply told them? You may have had very good reasons for why you did not talk to your children about this before but the lack of communication can have devastating effects on your family once you are gone.

 

Explanations Make Everything Easier

For example, you leave three quarters of your estate to your youngest child but only one quarter to your oldest, but you still make them the executor of your will. The older child will have a hard time not feeling resentment towards their sibling and their new responsibilities without any explanation from you. Simply explaining your reasons can go a long way towards preventing a bitter legal fight once you are gone. We recommend sitting down with all parties and explaining your reasoning to them in person. However, we know that not all families are comfortable talking about money, in those cases we recommend leaving a detailed letter explaining your reasons why you divided your estate the way you did.

Expanding on the earlier example, you may have decided to name your oldest child as executor simply because you know it will be more convenient for them to meet with your estate planner since your younger child has moved several hours away for work. Just telling your child this will lighten the burden on them. Likewise, you may have left more of your estate to your youngest because they need the boost starting their own business or because you know their financial situation isn’t as strong and they may need some help. A simple explanation can prevent a lot of needless stress from ever arising in your family.  

 

 

At the Estate Planning & Asset Protection Law Center, we help people and their families learn how to protect their home, spouse, life-savings, and legacy for their loved ones.  We provide clients with a unique educational and counseling approach so they understand where opportunities exist to eliminate problems now as they implement plans for a protected future.

We encourage you to attend one of our free educational workshops, call 800-964-4295 and register to learn more about what you can do to enhance the security of your spouse, home, life savings and legacy.

 

Click Here to Register For Our Trust, Estate & Asset  Protection Workshop

Tags: will, family, executor, Massachusetts, Wills, senior, Inheritance, children, unequal

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